How should a company manage employees that sit on external boards?

We recently undertook an outside Board participation survey. The purpose of this research was to understand if companies had employees who participate in outside Boards. We also sought to find out whether the companies have outside Board participation policies and which areas these policies address.

30 companies participated in this survey. These participants represented 11 economic sectors. Most respondents were from the quasi – government sector (20.69%) followed by the banking sector (17.24%), transport and logistics (13.79%) and manufacturing (10.34%).

These were our findings:
• Most of the participants (78.57%) said they have employees that participate in outside Boards and 21.43% of them said they do not.
• Most (70.37%) of the participants with employees who participate in outside Boards said they have employees that sit on professional associations Boards. 55.56% said they have employees that sit on school Boards. 51.85%, 37.04% and 33.33% of the participants said they have employees that sit on private sector, public sector and non – governmental Boards respectively.
• Most of the participants (50.00%) stated that employees at all levels are allowed to participate in outside Boards. 39.29% of the participants said only other executives are allowed. 25.00% said only CEOs are allowed to participate in outside Boards.
• 62.07% of the participants said they do not have an outside Board participation policy and 34.48% said they have such a policy.
• Generally, most the participants said the outside Board participation policy serves to guide senior executives on their roles in the organisation, and the likely impact of conflicts of interest, as well as the expected disclosures prior to joining a Board as this should be sanctioned by the company.
• 82.76% of the participants said if they allow their employees to sit on the outside Boards, they are allowed to retain fees.
• Most (64%) of the participants said, the time taken is treated as vacation leave.

Companies should develop policies to guide employees outside Board participation. Outside an absolute restriction on external board participation by employees, which may be unreasonable and an injustice to employees and companies alike, there really is no simple policy.

There are number of issues that this policy should address, for example: should you limit participation to certain types of boards? To a certain number of boards? With an increase in external scrutiny surrounding corporate governance and conflicts of interest, it is important for companies to clarify their approach to this topic, even in the absence of a black and white policy. Further, it’s imperative for employees to understand that outside board participation can, in some cases, present a conflict of interest and that they are required to disclose these relationships. Your policy should also address the employee’s time commitment to the Board position – how will this be recovered? In addition, you must evaluation relationship of the external organisation to your company. Is the external organisation a competitor, vendor, supplier, or other business partner of your company and, if not, is there the potential for such a relationship in the future?

To receive the full Outside Board Participation Survey Report, contact me on the details below.